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The other four fifths of the corporate tax “incidence” question

March 3, 2016   Blog
David Quentin

David Quentin, guest blogger

We’ve done two blogs in the past week on the fraught question of the ‘incidence’ of the corporate income tax: that is, the question of who ultimately bears the burden for paying the tax. Is it the shareholders of the corporation that gets taxed? Is it the workers? Is it customers? Who is it?

The first blog looks at the nonsense routinely spoken about this issue; the second focuses on a recent television debate between TJN’s Alex Cobham and Tim Worstall.

Now we offer a new guest blog by David Quentin, a UK tax barrister, who fills out the picture by taking a much broader-perspective view of the issues.

The other four fifths of the corporate tax “incidence” question

A guest blog by David Quentin. Adapted from his original post.

Tax Justice Network vs. Tim Worstall: a debate on corporate tax

Tim Worstall, a British commentator who has launched a number of vitriolic and personalised public attacks on TJN and TJN staff members in the the past, has been in debate with TJN’s Research Director, Alex Cobham, on the subject of corporate tax. (For a flavour of the extraordinary level of vitriol, see this.)

Anyway, here’s the debate.

Make your own minds up about who came off Worst.

On the much-debated subject of tax incidence, Worstall knows (because, as he states, he reads TJN’s outputs assiduously) that the nonpartisan U.S. Congressional Budget Office has highlighted studies that either find “capital bears the majority of the corporate tax burden” or that “even in an open economy, capital could bear virtually the entire tax burden and that the open-economy assumption is not sufficient to shift the burden of the corporate tax from capital to labor.”  (And he might like to answer the question of who the ‘workers’ are in a hedge fund or a shell company.)

As this 2012 paper (update: we mistakenly cited it as a CBO paper in the original: please see the comments below this post) put it in the conclusion:

“At the end of the searching, I find some evidence that suggests that corporate taxation may lower wages, but the preponderance of evidence does not suggest any wage effects from corporate taxation.
. . .

I close with a political economy point, mentioned by Lawrence Summers at a Hamilton Project forum in 2007.  He noted that it was indeed possible that corporate stockholders and managers who resist the corporate tax are not really acting in their own interests because they do not understand corporate tax incidence, since corporate taxes will ultimately be borne by their workers. But it seems far more plausible that they have calculated their interests correctly.”

See much more on this question of tax incidence here.

See also Tim Worstall, curious British attack dog.


Corporate tax: the great incidence hoax

February 25, 2016   Blog
Corp tax11We’ve mentioned the incidence question several times before, but TJN’s Director John Christensen was at a debate in London last night on the future of the corporate income tax, alongside Mike Devereux of the Oxford Centre for Business Taxation; Helen Miller of the Institute for Fiscal Studies; Simon Walker of the Institute of Directors, and Margaret Hodge, chair of the UK All Party Parliamentary Group on Tax.

It was a wide-ranging discussion, but one question that came up repeatedly was the question of the ‘incidence’ of the corporate income. Put most crudely, is it corporate shareholders who ultimately shoulder the tax charge, or is it workers? There are a number of people who claim that research demonstrates that the tax charge falls squarely on workers: as a top UK tax official put it:

“The consensus, among economists at least, is that it’s predominantly the employee who foots the bill [for the corporation tax.]”

It is this claim that is the great incidence hoax. There is no such consensus: and we argue that the opposite is true.

We thought we’d take the opportunity to re-publish a section of our 2015 document Ten Reasons to Defend the Corporate Income Tax. Don’t forget to go to the original for the all-important footnotes. (See pp 7-8 on this question.) 

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